Brokers upbeat on corn, cotton, sugar price outlook - but not wheat

Brokers still see prospects for gains in corn, cotton and sugar futures, but are downbeat on the outlooks for wheat, seeing values next year well below those investors are pricing in.

Analysts lifted forecasts for New York raw sugar futures over the past month, by 0.5 cents a pound to a consensus of 16.0 cents a pound, in terms of the average for the October-to-December period, according to FocusEconomics.

The upgrade – over a month in which a sugar rally faded after temporarily crossing back above 15 cents a pound – puts the forecast well ahead of the futures curve, with New York's October contract trading on Wednesday at 13.83 cents a pound.

And further ahead, brokers are more bullish too, seeing futures average 16.3 cents a pound in the last three months of 2018, compared with the 15.42 cents a pound being priced in to the October 2018 contract.

Ethanol vs sugar

"Prices should drift up slightly from their current level, as a poor outlook for profits encourages some producers to shift away from sugar towards other commodities," said FocusEconomics, which draws its forecasts from the likes of ANZ, Commerzbank and Itau BBA.

Indeed, the comments come amid some idea that sugar values have now slipped below so-called ethanol parity – the level at which Brazilian mills have an equal financial incentive to make either sugar or ethanol from cane.

Sucden Financial said that "the recent price movement and tax changes on ethanol have contributed to the parity increasing," with the biofuel offering the equivalent of an extra 0.30 cents a pound, in sugar terms, on a spot basis, and 0.50 cents a pound on September-to-January terms.

"Ethanol is therefore now more remunerative than sugar for export," the commodities house said, although adding that the "market will need to see evidence" of ethanol being preferred to sugar by Brazilian mills "before it admits to a base being formed in the sugar price".

'Prices will pick up'

For Chicago corn too, analysts nudged higher price forecasts over the last month, leaving the expectation of values averaging $4.10 a bushel in the October-to-December period, and $4.22 a bushel in the last three months of 2018.

The December 2017 contract was on Wednesday trading at $3.84 ј a bushel, with the December 2018 lot at $4.15 ј a bushel.

"Looking ahead, prices will pick up as industrial use of the grain in China and the US rises," FocusEconomics said.

"Additionally, prices should be pushed up further by growing imports from the European Union, as EU production weakens on the back of hot and dry climatic conditions in the region's south eastern countries."

'Gaining enough momentum'

Meanwhile, in New York-traded cotton, while analysts trimmed their forecast for fourth-quarter average prices by 0.8 cents a pound to 72.6 cents a pound, that implies further scope for the current price rally, which has taken December futures to 70.69 cents a pound.

"As growth in the global economy strengthens, worldwide consumption of cotton is projected to rise and should usher in a gradual increase in prices," FocusEconomics said.

"Mills in several Asian countries have already increased imports of US cotton by almost 60% this year.

Separately, Tobin Gorey at Commonwealth bank of Australia said that the cotton market "is now gaining enough momentum to attract buying from trend-following investors.

"Fundamentals are mostly a little supportive."

'Countervailing force'

However, investors cut their forecasts for Chicago winter wheat futures to levels below the futures curve, particularly for next year, seeing prices average $4.83 a bushel in the last three months of this year, and $4.94 a bushel in the October-to-December period of 2018.

Chicago's December 2017 wheat contract was on Wednesday valued at $4.86 Ѕ a bushel, with the December 2018 lot at $5.59 Ѕ a bushel.

Focus Economics flagged pressure on the market from "ample global supplies, after catching fire in June" on worries over the drought-hit US spring wheat crop.

Furthermore, "greater-than-previously-forecast production in Russia [has] acted as a countervailing force".

'Prices to remain under pressure'

On soybeans, investors are in line with the market on 2017 values, but in seeing futures averaging $10.17 a bushel in the last three months of next year, are ahead of the $9.81 ј a bushel being priced in to the November 2018 lot.

FocusEConomics flagged pressure on prices short term as "US soybean production is set to rise due to more acres being planted than a year ago.

"Prices are likely to remain under pressure as supply outpaces strong demand."

Coffee, cocoa outlooks

Meanwhile, on New York cocoa and coffee, forecasts were in line with market prices.

For arabica beans, in which brokers see prices ending next year at about 156 cents a pound, "although volatility should ease as the [Brazilian] harvest season wraps up, prices are expected to climb as global supply is exhausted ahead of next year's harvest", FocusEconomics said.

In cocoa, in which investors expect values to close 2017 at $2,003 a tonne, and next year at some $2,111 a pound, "given the large global surplus, cocoa prices are expected to remain broadly stable this year".

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